The subprime mortgage crisis is an ongoing financial crisis characterized by contracted liquidity in global credit markets and banking systems triggered by the failure of mortgage companies, investment firms and government sponsored enterprises which had invested heavily in subprime mortgages. The crisis, which has roots in the closing years of the 20th century but has become more apparent throughout 2007 and 2008, has passed through various stages exposing pervasive weaknesses in the global financial system and regulatory framework.
The crisis began with the bursting of the United States housing
bubble and high default rates on "subprime" and
adjustable rate mortgages (ARM), beginning in approximately 2005–2006.
For a number of years prior to that, declining lending standards, an
increase in loan incentives such as easy initial terms, and a
long-term trend of rising housing prices had encouraged borrowers to
assume difficult mortgages in the belief they would be able to quickly
refinance at more favorable terms. However, once interest rates began
to rise and housing prices started to drop moderately in 2006–2007 in
many parts of the U.S., refinancing became more difficult.
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